Use separate sheets of paper as
needed to answer. Please be sure to put your name on your answer sheets and the
part of the exam you are answering and the number of the question you are
answering. Note there are 4 parts and each part is worth 25 points.

Part I: Please explain
the following briefly:
1. What is the difference between empirical and
theoretical economics?
2. Is water scarce?
3. What are the functions of money?
4. What is the misery index?
5. Assume that food, clothing, and shelter are goods which constitute a
"market basket" of goods and services used to compute a GDP price
deflator and that 1989 is the base year.
Using the information below, what is the GDP price deflator in 1996?

Good

Quantity in 1989

Quantity in 1996

Price in 1989

Price in 1996

Food

5

4

$3

$2

Clothing

3

4

$7

$8

Shelter

8

9

$8

$5

6. What is the government expenditures multiplier?
7. How many Federal Reserve Banks are there?
8. How has Depository Institutions Deregulation and Monetary Control Act of
1980 changed the US Banking System?

For questions 9 & 10,
Suppose the production possibilities for the US
and South Korea
are:

US

South Korea

Goods

A

B

C

D

Goods

A

B

C

D

Radios

10

8

6

4

Radios

30

24

18

12

Chairs

0

4

8

12

Chairs

0

4

8

12

9. What is the opportunity cost of a radio in the US?
10. What good should each country tend to specialize in and why?

Part II:Using separate diagrams for each of the following, with
supply & demand clearly labeled, depict the effect on the equilibrium price
and quantity of the good that will be produced & sold.
1) The effect of an increase in the cost of cream on the ice cream market.
2) The effect of an increase in the number of teenagers on the market for
roller blades.
3) The effect of an increase in the price of Toyotas on the market for Hondas.
4) The effect of a fall in the price of hamburger on the market for hamburger
buns.

Also use separate appropriately & clearly labeled diagrams for each
of the following:
5) The effect of an increase in government spending on the aggregate expenditures
model.
6) A typically shaped production possibilities curve for an economy producing
consumer goods and capital goods before and after a period of substantial
growth.
7) A recessionary gap.
8) Short run and long run Phillips curves.
9) The effect of technological change over time on the aggregate demand and
aggregate supply model.
10) The difference in AS according to Keynesians, Monetarists, and Rational
Expectations Theorists.

Part III: Choose the best answer.
1. The scarcity problem :
a) persists only because countries have failed to achieve
continuous full employment.
b) persists because material wants
exceed available productive resources.
c) has been solved in all
industrialized nations.
d) has been eliminated in affluent
societies such as the United States
and Canada
e) is very likely to be solved in the next century.

2. The notion of opportunity cost is :
a) the monetary price of any productive resource.
b) the amount of labor that must be
used to produce one unit of any product.
c) the ratio of the prices of
imported goods to the prices of exported goods.
d) the amount of one product that
must be given up to produce one more unit of another product.
e) convex to the origin.

6. If a natural resource such as oil or lead becomes increasingly scarce:
a) its price will rise, signaling greater conservation in
its use and a more intensive technological search for substitutes
b) its price will rise, signaling a
more intensive use of the resource and a more intensive technological search
for substitutes.
c) its price will fall, signaling
greater investment in equipment used in the exploration and extraction of that
resource.
d) none of the above will occur.
e) all of the above will occur

7. Critics of the doomsday models:
a) question the assumptions made concerning the exponential
growth of industrial output and population.
b) contend that technological
progress is constantly increasing the supplies of economic resources.
c) argue that changes in market
prices signal greater conservation in the use of scarce resources.
d) believe increases in prices of
scarce resources encourage development of substitutes.
e) make all of the above arguments.

8. In which of the following periods was the growth
of labor productivity most rapid?
a) 1948-1966 b)
1966-1973 c) 1973-1981 d)
1981-1990

9. During the 1970s R&D expenditures:
a) made no contribution to economic growth.
b) declined as a percentage of GDP.
c) were constant as a percentage of
GDP.
d) grew as a percentage of GDP
e) caused GDP to decline.

10. Depreciation of the dollar will:
a) increase the prices of the goods Americans import, but
decrease the prices to people abroad of the goods Americans export.
b) decrease the prices of the goods
Americans import, but increase the prices to people abroad of the goods
Americans export.
c) increase the prices of both
American imports and exports.
d) decrease the prices of both
American imports and exports.
e) tend to lead to reduced exports.

Part IV: Choose 2 of the following essay questions and give
thorough answers.
1. As a careful economist interested in examining changes in well being what
would you recommend we look at besides GDP? Be sure to relate your answer to
some of what does and does not get included in GDP.